Tulsyan NEC Ltd Management Discussions.

I. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Companys products are TMT Bars, Sponge Iron, Billets and Ingots in the steel division and in synthetic division it is PP Woven Sacks, FIBC and Woven Fabric. TMT Bars are used in the Construction Sector and the plastic products cater to the packaging needs of various industries such as Cement, Fertilizers, Food grains, Sugar, etc. The raw materials for Steel Making are M.S. Scrap, Sponge Iron and for TMT Bars is Billets. PP Granules is used for manufacture of plastic packaging products. This raw material is available in abundance within the country and can also be freely imported. Being in the commodity market the company is continuously making efforts for reducing the cost of production to sustain its margins.

STEEL INDUSTRY

• The World Steel Association has projected Indian steel demand to grow by 7.1% in 2019 while globally; steel demand has been projected to grow by 1.3% in 2019.

• The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel.

• Rapid rise in production has resulted in India becoming the 2nd largest producer of crude steel during 2018, from its 3rd largest status in 2017. The country is also the largest producer of Sponge Iron or DRI in the world and the 3rd largest finished steel consumer in the world after China & USA.

• In a de-regulated, liberalized economic/market scenario like India the Governments role is that of a facilitator which lays down the policy guidelines and establishes the institutional mechanism/structure for creating conducive environment for improving efficiency and performance of the steel sector.

• In this role, the Government has released the National Steel Policy 2017, which has laid down the broad roadmap for encouraging long term growth for the Indian steel industry, both on demand and supply sides, by 2030-31. The Government has also announced a policy for providing preference to domestically manufactured Iron & Steel products in Government procurement.

• Further, the liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry, participation and growth of the private sector in the steel industry. While the existing units are being modernized/ expanded, a large number of new steel plants have also come up in different parts of the country based on modern, cost effective state of-the-art technologies. In the last few years, the rapid and stable growth of the demand side has also prompted domestic entrepreneurs to set up fresh greenfield projects in different states of the country.

STEEL PRODUCTION:

Listed below is a snapshot of Indian steel industrys performance in 2018-19 based on provisional data released by the Joint Plant Committee (JPC) with growth rates compared to 2017-18

• India is currently the 2nd largest producer of crude steel in the world.

• In 2018-19, production of total finished steel (alloy + non alloy) was 131.572 mt, a growth of 3.7% over last year.

• Production of Pig Iron in 2018-19 was 6.055 mt, a growth of 5.7% over last year.

• India is the largest producer of Sponge Iron in the world. The coal based route accounted for 79% of total Sponge Iron production (33.040 mt) in the country in 2018-19.

• Import of total finished steel was 7.83 million mt, an increase of 4.68 per cent.

• India is currently a net importer of total finished steel.

• Per capita finished steel consumption in 2018 was 70.9 kg for India.

(Source: Ministry of Steel)

POWER:

As at 30th May 2019, total power production capacity of India is 356818 MWs. Out of the total capacity, 54.50% is from Coal based thermal power plants. Domestic coal requirement is largely met from the Coal produced India. Large power produces buy coal in the coal block auctions and smaller units mainly import the coal and also buy locally.

To achieve universal household electrification in the country by March 2019, the Government of India had launched Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA). This, supported by visible revival of distribution companies through UDAY, augurs well for the entire Power Sector and would help unleash the huge latent demand for electricity.

DEMAND AND SUPPLY:

The Demand Supply position improved substantially since last 3 years and currently the availability capacity is equivalent to the demand as may be observed from the table below. Increased supply position has resulted in reduction of the realization per unit and also regulatory restrictions and levies such as Cross subsidy have impacted the margins and the realization.

Year Requirement (MU) Availability (MU) Surplus (+) (MU) Deficits (-) (%)
2009-2010 8,30,594 7,46,644 -83,950 -10.1
2010-2011 8,61,591 7,88,355 -73,236 -8.5
2011-2012 9,37,199 8,57,886 -79,313 -8.5
2012-2013 9,95,557 9,08,652 -86,905 -8.7
2013-2014 10,20,257 9,59,829 -42,428 -4.2
2014-2015 10,68,923 10,30,785 -38,138 -3.6
2015-2016 11,14,408 10,90,850 -23,558 -2.1
2016-2017 11,42,929 11,35,334 -7,595 -0.7
2017-2018 12,13,326 12,04,697 -8,629 -0.7
2018-2019 12,74,595 12,67,526 -7,070 -0.6

(Source: Ministry of Power and Energy) II. OPPORTUNITIES AND THREATS Opportunities:

• India is one of the fastest growing steel consumers in the World and is all set to become the 2nd largest steel consumer in the World in the coming years.

• Consequential growth in the steel demand due to increased government spending on the infrastructure such as Highways, Railways and Smart cities offers opportunities of increased sales and demand for companies products.

• Imposition of Minimum Import Price on steel imports to the county offers stable support to market prices offers another opportunity in respect of increased demand and improved pricing.

• The National Electricity Plan by Central Electricity Authority and draft National Energy Policy by Niti Aayog have signalled additional requirement of thermal capacity in coming years.

• The position of power supply has improved in the state of Tamil Nadu resulting in lower realization and lower profitability. Levies such as cross subsidy by the DISCOMs further erode the margin and supply opportunities. Also levy of green cess on Coal imports has marginally increased the cost of production of power.

Threats:

• Stringent environment norms for Steel Plants and Mines.

• Increased competition from domestic as well as Global steel companies.

The power situation offers both an opportunity and threats in respect of profitability in as much as it improves the profitability in steel production benefiting from the lower power costs subject however, to sustainable demand for the steel. With no new investments in the power sector in the last 3/4 years is expected to bring about the demand and improve the operations.

Steel prices which saw an upswing after imposition of Minimum Import prices and have subsequently stabilized. Cost of raw materials also have declined in respect of steel which have moved in tandem with the prices of the finished steel thus keeping the margins reasonably at the same levels.

III. SEGMENT-WISE/ PRODUCT-WISE PERFORMANCE

The production of steel rods was 140625 MT compated to 129208 MT in the previous year registering a growth of 8.84%. The sale of rods during the year was 134909 MT compared to 129667 MT in the previous year. The production of power was 4526 Lac units compared to 3812 Lac units in the previous year registering a growth of 18.73%.

The production of synthetic products was 7599 MT compared to 7218 MT in the previous year. The sale of synthetic products during the year was 5982 MT compared to 5177 in the previous year registering a growth of 15.55%.

IV. OUTLOOK

As per WSA, global steel demand is forecasted to reach 1,735 MnT in 2019, an increase of 1.3% over 2018. In 2020, global steel demand is expected to reach 1,752 MnT, reflecting an increase of 1%. Although steel demand is expected to grow, the rate of growth will be lower owing to slowdown in global economy. Further, Chinas deceleration, uncertainty surrounding trade policies and the political situation in many regions suggest a possible moderation in business confidence and investment.

Further, present day economic situation of the country poses threats, expected revival will bring in lots of opportunities for growth. With various infrastructure facilities lined up both in private and public sectors including nuclear power and water, across the country, the management envisages robust demand for its products especially steel. The company has emerged stronger in the last five years and is well set to capitalize on growth prospects as they arise.

V. RISK AND CONCERNS

Delays in infrastructure development, availability of skilled manpower, volatility in global economy are some of the major risks and concerns that have to be addressed. All these have an impact on the operations of the company. The company is conscious of the risks involved and has put in place a mechanism for minimizing and mitigating the same. The process is reviewed periodically.

The steel industry is characterized by high capital intensity, high dependence on bulk raw materials, cyclical growth trends, perpetual over-capacity and relatively low profitability. This is the reason why the problems associated with the steel industry are generally complex requiring larger governmental and social interventions for its sustainable growth. Also, given their criticality to nation building, almost all nations with strong steel industry today had started their journey with steel industry in the state sector. Today, the industry is largely privatized and public owned with the government holding significantly reduced equity. Steel consumption significantly depends on the overall performance of the economy (GDP) and more specifically on investments made in fixed assets such as housing, infrastructure like railways, ports, roads, airports, etc.

VI. INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY

The company has proper and adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly and applicable statutes, the code of conduct and corporate policies are duly complied with.

VII. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review, the Company has achieved a Sales Turnover of Rs.84255.64 lakhs which was higher by 16.19% over last years turnover of Rs.72514.91 lakhs. The Comparative performance of major financial parameters during the financial years 2018-19 and 2017-18 is given below:

Particulars 2018-19 2017-18
Sales Turnover 84,255.64 72,514.91
Other Income 656.00 436.15
Total Income 84,911.64 72,951.56
Profit before Interest, Depreciation, exceptional/abnormal items
4,056.78 1,740.12
and Tax (EBIDTA)
Less: Interest 23,575.42 13,709.44
Less: Depreciation 2,481.28 2,562.51
Profit before Tax (PBT) before exceptional / abnormal items (21,999.92) (14,531.83)
Less: Exceptional items 240.76 1,145.62
Profit before Tax & OCI (22,259.28) (15,753.55)
Particulars 2018-19 2017-18
Profit After Tax (22,240.68) (15,677.45)
Networth (38,791.22) (16,556.05)
EBIDTA to Net sales (%) 4.81 2.40
PAT to Net worth (%) 0.57 0.95
Debtors 26,924.38 24,138.62
Debtors Turnover (In days) 117 122
Inventory 9,775 9,232
Inventory Turnover (In days) 42 46
EBIT 1,316.14 (2,044.11)
Interest Coverage Ratio 0.06 (0.15)
Current Assets 41,275.95 39,945.72
Current Liabilities 99,891.16 85,612.80
Current Ratio 0.41 0.47
Debt 1,00,820.63 88,303.97
Debt Equity Ratio (2.60) (5.33)
Operating Profit Margin (%) 1.56 (2.82)

As compared to last year the operating profit margin of the Company has improved due to improved performance however, the profitability of the Company is adversely affected due to higher interest cost.

VIII. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

Your Company believes that Human Resources are the driver to its continued success by helping to meet the challenges of providing quality products to the customers across the length and breadth of the country and penetrating key markets abroad. In order to strengthen its human capital base, your Company continues to invest in human resources by retaining and developing its existing talent and also attracting competent and talented manpower across functions. Your Company maintained cordial and harmonious Industrial relations in all our manufacturing units. Several HR and industrial relations initiatives implemented by the Company have significantly helped in improving the work culture, enhancing productivity and enriching the quality of life of the workforce. All the above initiatives have contributed significantly to achieving and maintaining the market leadership, your Company enjoy today. The total employee strength as on 31st March, 2019 is 695 (excluding Directors).

IX. CAUTIONARY STATEMENT

The above Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking Statement" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include external economic conditions affecting demand/supply influencing price conditions in the market in which the Company operates, changes in Government regulations, statutes, tax laws and other incidental factors.

By Order of the Board of Directors For Tulsyan NEC Limited Sd/- Lalit Kumar Tulsyan Place: Chennai Executive Chairman Date: 14-08-2019 DIN: 00632823